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Part Two: The Environment of Management
Yao Ming, Jackie Chan, and Walmart: China Embraces Big Stars and Big Box Retailing
When you're an American retailer with thousands of stores spread liberally throughout the best shopping areas of the United States, at some point the question arises: "What next?" Top brass at Walmart were asking this question in the late 1980s, when stores were booming in the Southeast and spreading to all 50 states. Their answer? "Go global."
Walmart's first step toward international retailing occurred in 1991 with the opening of a Sam's Club near Mexico City. Today Walmart International is the company's fastest growing business unit, accounting for 25 percent of total revenues. After official launch in 1993, the overseas operation expanded into 15 countries including Brazil, Canada, the United Kingdom, and Japan. But the greatest buzz has centered on China, an emerging market of 1.3 billion people.
Walmart's adventure in the land of dragons and emperors began in 1996 when rollout teams built a supercenter in Shenzhen, a city just north of Hong Kong. Walmart's China entry was made possible by economic reforms introduced in the late 1980s under Chinese leader Deng Xiaoping. In a break from its isolationist past, China's communist-led government began making modest concessions to capitalism and Western businesses. The move sparked two decades of rapid economic growth, and Chinese consumers now buy everything from flat screen TVs and cars to designer apparel-they even purchase lattes at Starbucks and chicken at KFC. China's modernization has become symbolized by pro-basketball star Yao Ming, Supergirl singing phenom Li Yuchun, Olympic world champion Liu Xiang, and Karate Kid martial-arts actor Jackie Chan Sino celebrities who have achieved Western-style fame and lucrative sponsorships with American businesses.
As Walmart's spread throughout the People's Republic indicates, big box retailing is a hit with Chinese consumers. In 2004, Walmart operated 39 stores in China, In 2010, the number reached 290 total units, including 104 Trust Marr Hypermarkets, 178 supercenters, and 4 Sam's Clubs. The early success has caused analysts to speculate that Walmart China will eventually have more stores than the domestic American market.
Walmart China's supercenters have much in common with their U.S. counterparts. The expansive stores are stocked with mountains of low-price merchandise proving that Sam Walton's "stack'em high, watch'em fly" philosophy has transcended cultural boundaries. But differences exist as well. First, 75 percent of Walmart's international stores operate under a different banner, reflecting the web of acquisitions and joint ventures Walmart uses to enter foreign markets. Next, the selection of merchandise offered in China supercenters is oriented to the unique tastes of Walmart's 7 million weekly Chinese shoppers. Grocery sections are stocked with live frogs, turtles, and fish-fresh staples of Chinese diets and familiar American products are curiously altered, as with Tide detergent, which is sold as a hand-wash laundry product due to the scarcity of washing machines in China.
Douglas McMillon, Walmart Internationals president and CEO, says that despite visible variations among stores, the company's goal is the same in every area of the world. "The primary objective is to save people money so they can live a little better," said the head of Walmart's fast-growing segment. "Our goal in every market where we operate is not only to deliver products at a great value, but also to ensure that all of the products we sell are made in an ethical and sustainable way."
But running a multinational operation in "an ethical and sustainable way" is easier said than done. In 2010, Google exited China over the country's strict censorship policy and poor record on human rights. Years earlier, The Gap caused a firestorm of criticism by unintentionally sourcing products made by child laborers in India. Intent on learning from others' mistakes, managers at Walmart have developed an Ethical Standards Program to audit suppliers and ensure the ethical procurement of goods. "In our 'Standards for Suppliers,'" says McMillon, "we outline our expectations that our suppliers must compensate all workers with wages and overtime premiums and benefits that meet or exceed local legal standards, local industry standards, or collective agreements, whichever are higher." Rajan Kamalanathan, vice president of Ethical Standards, notes that the program is in place to do what is right for factory workers and the environment; "We not only bring sustainable and positive change to working conditions in factories, we also help build ladders to a better life in the countries where we're sourcing." The new program is showing results; In 2006, the ethical standards team conducted 8,873 factory audits-more than any other company in the world-leading to a 23 percent decrease in high-risk standards violations.
policing the workplaces and ecological footprints of thousand, of international vendors may be a herculean task, but executives at Walmart say it's a necessary one. Chairman Lee Scott, in a discussion forum sponsored by Fortune magazine, laid out the case for international ethics and corporate social responsibility. "If China is allowed to produce the world's goods without following reasonable protocol in protecting the environment and protecting people," Scott reasoned, "ultimately governments will react and do something to balance that. So I think it's in China's best interest, and I think China understands that.' Scott added that socially responsible business is simply good business-by reducing waste and energy usage throughout the supply chain, Walmart is lowering costs and paving a path to higher profits for all. "We've been able to go in and work with individual factories, where stead of costing them more money to do it the right way, the factory is actually able to save cost by doing it the right way"
Which market entry strategy is Walmart primarily using to enter foreign markets, and why has management chosen this approach?